The Coase Theorem
Under idealized conditions, bargaining can reach an efficient outcome despite initial rights allocation.
The Mechanism: The Coase theorem describes how parties may bargain toward an efficient allocation when property rights are clear and transaction costs are negligible. Under those assumptions, the initial assignment of rights does not determine the efficient outcome, though it still affects who pays whom.
The Philosophical Pivot: The theorem highlights the importance of transaction costs and legal rules. Real people must find one another, negotiate, verify agreements, and contend with unequal bargaining power.
The Horizon: Coase's analysis helps explain why institutions matter when externalities cross property boundaries. It does not show that regulation is unnecessary or that private bargaining works under ordinary conditions.
Large groups, uncertain harms, and future generations make negotiation difficult. Some parties may lack the resources or legal standing to bargain at all.
Rights determine who has authority to demand a change and who must bear the burden of adapting.
Efficiency cannot settle the moral question of whose rights should be protected before bargaining begins.
A bargain can be efficient while the power to refuse it remains radically unequal.
If the party harmed cannot afford to negotiate, does the existence of a theoretical bargain make the arrangement fair?